CareDx, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. All financial amounts below are in U.S. dollars; “Q2” means the three-month period and “H1” the six-month period.
Business context
CareDx develops and commercializes transplant-focused diagnostic testing, products and digital solutions. Testing services include AlloSure Kidney, AlloMap Heart and AlloSure Heart; testing generated the large majority of revenue. The company operates as one reportable segment.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $74.2m | $41.8m | $141.6m | $80.2m |
| Gross profit / margin | $50.2m / 67.7% | $26.8m / 64.1% | $96.0m / 67.8% | $52.8m / 65.8% |
| Operating loss | $(4.7)m | $(10.8)m | $(5.6)m | $(16.6)m |
| Net loss | $(1.9)m | $(6.6)m | $(2.6)m | $(12.4)m |
| Basic and diluted loss per share | $(0.04) | $(0.15) | $(0.05) | $(0.28) |
- Q2 revenue rose 77% year over year. Testing services revenue increased 79% to $64.9m, product revenue rose 108% to $6.9m, and digital and other revenue grew 10% to $2.4m. H1 revenue increased 77% year over year.
- Q2 testing volumes included approximately 37,400 AlloSure and AlloMap patient results, including about 6,600 AlloSure Heart results. Management attributed testing-services growth primarily to higher test volumes; product growth primarily to NGS typing products.
- Operating expenses rose with growth, including higher research and development, sales and marketing, and general and administrative costs. H1 stock-based compensation was $15.9m.
- H1 operating cash flow was negative $23.8m, compared with positive $21.0m in H1 2020. The company cited increased operating assets and the $20.5m repayment of the CMS advance payment as significant cash uses.
- H1 investing cash flow was positive $35.3m, including $55.1m from maturities of marketable securities; financing cash flow was positive $189.6m, mainly from the January 2021 equity offering.
- At June 30, cash and cash equivalents were $335.6m and current marketable securities were $34.3m. Management reported cash, cash equivalents and marketable securities of $369.9m, no debt outstanding, and said available resources and expected cash from operations should meet anticipated needs for at least 12 months. Current liabilities were $56.3m. Operating lease liabilities totaled $21.1m.
Changes, outlook and notable items
- Compared with Q2 2020, operating loss narrowed by $6.1m and net loss narrowed by $4.6m. H1 operating and net losses also improved year over year. Gross margin increased in both comparisons.
- Q2 2020 included $4.8m of CARES Act Provider Relief Fund income, which did not recur in 2021. Q2 and H1 2021 other income included an unrealized gain on the Miromatrix investment; the H1 cash flow statement identifies a $3.1m unrealized gain.
- In January and February 2021, the company raised approximately $188.7m net through a public equity offering and full exercise of the underwriters’ over-allotment option. Shares outstanding increased to 52.6m at June 30, from 49.4m at year-end 2020.
- Acquisitions and investments expanded the portfolio: TransChart was acquired in January; BFS Molecular assets were acquired in March; the company acquired commercialization rights and the Transplant Hero application in June; and it invested $5.0m in Miromatrix. It also entered a strategic agreement with OrganX with potential future milestone payments.
- Management reported that testing volumes had returned to, and remained at or above, pre-pandemic levels through June 2021, despite renewed COVID-19 infection and travel restrictions. It cautioned that future effects on operations, supply chains and clinical studies remain uncertain.
- No numeric revenue or earnings guidance was provided in the filing. The company expects continued investment in product development, clinical evidence, commercialization and acquisitions, and says it expects losses to continue for several years.
- Medicare accounted for approximately 61% of revenue in both Q2 and H1 2021, creating payer-concentration and reimbursement exposure. The company also cited risks involving payer coverage, clinical adoption, competition, regulation, supply availability, COVID-19, acquisitions, intellectual property and its history of losses.
- Two Natera matters remain pending, including patent-infringement and false-advertising claims; trial in the false-advertising matter was scheduled for October 25, 2021. The company said it intended to defend both cases and had recorded no liability. It also disclosed disputes with a former employee concerning alleged downloading of confidential information and employee claims.
- Management stated disclosure controls were effective at the reasonable-assurance level and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether strong test-volume growth and reimbursement coverage continue, particularly given Medicare’s approximately 61% revenue share.
- How much operating cash use reflects temporary working-capital movements and CMS repayment versus ongoing business needs.
- Whether gross-margin improvement persists as testing and product volumes scale, while operating expenses and stock-based compensation remain elevated.
- The commercial progress and integration costs of recent acquisitions, and any future OrganX milestone payments or other commitments.
- Developments in the Natera litigation and former-employee matters, including potential financial or operational consequences.
- Any subsequent changes to management’s stated 12-month liquidity assessment, and the impact of future financing or share issuance on dilution.